Question

Sienna Company uses the FIFO cost flow assumption. Sienna has inventory with a selling price of $100, packaging costs of $5, and transportation costs of $10. Sienna's normal profit margin is $20. However, due to limited supply of the product from the manufacturer, it would cost Sienna $80 to replace the inventory. What amount should be used as the market value?a. $ 65b. $ 80c. $ 85d. $ 100

Answer 1

Answer: $85

Step-by-step explanation:

The following information can be gotten from the question:

Selling price = $100

Less: Packaging cost = $5

Less: Transportation cost = $10

Ceiling price = $100 - $5 - $10 = $85

Net profit = $20

Floor price = $85 - $20 = $65

In this scenario, the replacement cost of the inventory is higher than the floor price of $65, therefore the market value should be $85.